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32184_KELLOGGS:KELLOGGS STUDY V7 23/6/09 09:57 Page 1

www.thetimes100.co.uk

Supply chain from
manufacturing to shelf
Introduction CURRICULUM TOPICS
• Supply chain
• Sectors of industry
The Kellogg’s Cornflake Company began in 1906 with the Kellogg brothers who originally • Lean production
• Sustainable business
ran a sanatorium in Michigan, USA. They experimented with different ways to cook cereals
without losing the goodness. Their philosophy was ‘improved diet leads to improved health’.
GLOSSARY
Business strategy: the overall
Between 1938 and the present day Kellogg’s opened manufacturing plants in the UK, plan a company has for itself.
Canada, Australia, Latin America and Asia. Kellogg’s is now the world’s leading breakfast Supply chain: the chain of
cereal manufacturer. Its products are manufactured in 19 countries and sold in more than processes linking the manufacture
of products with physical
160 countries. It produces a wide range of cereal products, including the well-known brands distribution management so that
of Kellogg’s Corn Flakes, Rice Krispies, Special K, Fruit n’ Fibre, as well as the Nutri-Grain goods are moved quickly and
efficiently through various
cereal bars. processes to meet consumer
needs.

Kellogg’s business strategy is clear and focused: Primary sector: the first stage in
producing goods concerned with
• to grow the cereal business – there are now 40 different cereals growing or extracting raw materials
• to expand the snack business – by diversifying into convenience foods e.g. oil drilling, mining,
agriculture, fishing and forestry.
• to engage in specific growth opportunities.

By acting responsibly, businesses win respect and trust from communities, governments,
customers and the public. This enables the business to grow. In the community, Kellogg’s is
known for its approach to Corporate Social Responsibility (CSR). For example, its programme
to promote the benefits of breakfast clubs has provided over one million breakfasts to
schoolchildren throughout the UK.

Businesses focus primarily on the creation of profit but increasingly understand that their
social and environmental impacts are important. Kellogg’s believes in acting responsibly in all
sections of the supply chain. This is a better long-term business model for both the
organisation and its customers. Amongst other activities, it aims to do this by reducing energy
and emissions in manufacturing and distribution and improving packaging.

Kellogg’s Global Code of Ethics demonstrates a commitment to act respectfully and ethically.
‘Our mission is to drive sustainable growth through the power of our people and brands by
better serving the needs of our consumers, customers and communities.’

This case study shows how Kellogg’s fulfils this mission in the later parts of the supply chain
from manufacturing to shelf.

The supply chain
The industrial supply chain consists of three key sectors:
1. Primary (or extractive) sector - providing raw materials such as oil and coal or food
stocks like wheat and corn. Some raw materials are sold immediately for consumption,
such as coal to power stations. Others are used further up the supply chain to be made
into finished goods.

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Kellogg’s seeks to organise transportation and storage of materials and finished products to minimise costs and environmental impact. wood.g. e. assembly and Raw materials Manufacturers/ Wholesalers/ construction. It is more important for its manufacturing sites to be near to distribution channels and customers so products can reach shelves quickly.g. Kellogg’s ingredients are grown in many countries. In the past. businesses thought it was more effective if they carried out several parts of the supply chain. banking. It is a large-scale manufacturer and stores sufficient stocks to meet customer orders. 3. In the supply chain. Kellogg’s regularly evaluates its production methods to ensure that they give the required outcomes and that waste is reduced. This aids competiveness and profitability by lowering overheads and unit costs. Examples include car manufacturers or bakers who use primary products. Overheads: costs arising from the general running of a business e. corn. themselves. earth to production that seeks to and minerals minimise waste and inefficiency. Kellogg’s purchases rice for Rice Krispies and corn for Cornflakes. To meet requirements and provide customer satisfaction. It is therefore more efficient and cost-effective for Kellogg’s to specialise in the area in which it is expert – manufacturing. Increasingly governments are working to encourage businesses and individuals to reduce their carbon footprint and the effects of global warming. sales. As part of their business strategy. and e. Large-scale manufacturers like Kellogg’s need to consider many different aspects of their operations: • where to locate the business – this could be near to materials’ suppliers. Frozen peas factories may be near farms to ensure the product is fresh.thetimes100. The supply chain – the secondary sector Kellogg’s is a secondary sector business. 90 . rates. products warehousing cornflakes. They also need to accommodate the frequent delivery of incoming materials and outgoing finished goods. Businesses such as Kellogg’s recognise the importance of storing and transporting products effectively. It obtains its raw materials of wheat. rice and sugar from primary suppliers around the world. like manufacturing and transportation. quality. GLOSSARY Primary Secondary Tertiary sector sector sector Secondary sector: manufacturing. transport.g. Lean production is an inventory system enabling the streamlining of processes and elimination of waste. They provide services such as in www. there are a number of areas where waste can be identified.g. For example. power stations are often sited near to coal sources to reduce delivery costs. • size and scale– they need large factories with adequate space for equipment and production processes. leisure industries or transport. food glass and pottery Lean production: an approach stocks. rent.uk banking. As part of its Research and Development (R&D) programmes. and transport and distribution. build and assemble products. retailing. An urgent order might result in a half-empty vehicle making the delivery to a waiting customer.co. From start to finish of the supply chain a range of agencies or departments are involved. card and boxes. Consumers and governments now look for more environmentally-friendly methods of production and distribution systems. companies need to consider how best to acquire and distribute raw materials. Secondary (or manufacturing) sector industries make. this meant deliveries taking place frequently and often without consideration of impacts on the environment. For example. If this happened regularly it would be a waste of time and fuel. it develops recipes to extend its range of cereals and snacks. It does not have its own distribution fleet but uses partners for its transport needs. These include research. suppliers producers retailers Transport Transport Tertiary sector: service Natural and e. purchasing. cocoa. oil. Tertiary sector industries do not produce goods.g. Transport Consumers industries e. warehousing supermarkets insurance or hairdressing.32184_KELLOGGS:KELLOGGS STUDY V7 23/6/09 09:57 Page 2 2. These materials help make over 40 different breakfast cereals and snacks to sell to customers through the tertiary sector.

which makes paper products like tissues. This will reduce their water bills by £60 million each year. www. levels of packaging to consumers the level of service is formally defined. These include the major retail supermarkets such as Tesco and ASDA and some of the wholesale sector such as Makro. warehousing or transportation.32184_KELLOGGS:KELLOGGS STUDY V7 23/6/09 09:57 Page 3 • where and how materials and finished goods are to be stored until needed for sale. Kellogg’s employs specialist transportation and storage companies to be responsible for all the logistics aspects of its business. Transportation and storage occur between all stages of the supply chain. Kellogg’s has reduced both its carbon footprint and costs as a result.uk Kellogg’s largest UK production plant is at Trafford Park in Manchester. An example of this is the Shelf Ready Unit that Kellogg’s developed with Tesco. use of water during production Turnover: the total value of all 3.thetimes100. Kellogg’s works between people or groups collaborates with TDG. 91 . reduce wastage and cut CO2 emissions. only one mile away from its production base. waste to landfill time. This sector involves: • retailers like supermarkets that purchase manufactured goods from secondary sector businesses and sell them to the consumers • service companies who may deal in. This means that the supermarket uses less staff time (and cost) in setting up a display. manufacturers and has called on its members to improve their environmental performance by Service level agreements: reducing: part of a service contract where 1. • where its customers are – Kellogg’s does not sell its breakfast cereals directly to consumers. stores and transports pallets of Kellogg’s cereals. energy use during production. helping keep Kellogg’s products competitive. The supply chain – tertiary sector The final stage in the industrial supply chain is the tertiary sector. This has reduced distribution costs. 2. Kellogg’s moved this storage to a new warehouse GLOSSARY site in Trafford Park. To improve its distribution. This saves time. to reduce carbon emissions by sharing delivery services. energy-efficient. Together these companies aim to save 140 million litres of water per day. supermarkets. To drive sales. One of Kellogg’s partners. finance. from raw materials to finished goods. This allows Kellogg’s to concentrate on its specialist area of manufacturing cereals and other food products. As part of Kellogg’s manufacturing process it packages products ready for immediate distribution. road miles and provides additional benefits of reducing CO2 emissions. It does not manufacture goods. Kellogg’s has also joined with the international company Kimberley Clark. This displays Kellogg’s products easily and effectively. This provides specialist Intermediaries: someone who energy efficient warehousing of stock 24 hours a day. This reduces transport costs considerably and is to help them agree on or carry out something important. Logistics: the orderly movement and storage of goods throughout The Food and Drink Federation (FDF) is an umbrella organisation for food and drink the supply chain i.co. The display is attractive and easier for consumers to choose from. Kimberley Clark. It uses intermediaries like wholesalers. Kellogg’s has signed an agreement with 21 major companies to improve water efficiency. The tertiary sector provides services. impact of transportation sales made in a given period of 4. Kellogg’s also shares transportation with another manufacturer. Kellogg’s has major relationships in the tertiary sector. for example. Kellogg’s now has targets in these areas and where possible builds these aspects into Service Level Agreements with partner companies in the primary. Sometimes referred to as sales revenue. secondary and tertiary sectors. computer systems. One of its storage depots was 15 miles away at Warrington. Through the FDF.e. high street stores and hotels. TDG. The system helps reduce the number of part-full or empty vehicles on the road. Kellogg’s is involved in initiatives that help add value for retailers. Kellogg’s relies on retailers to help them promote a good relationship between the consumer and its products. 5. increasing turnover for Kellogg’s and Tesco. Storing stock and transporting it are key activities that link all three parts of the supply chain. a logistics specialist.

at the right time. in the right place and at the right time will result in good business for each link of the chain. Computerised warehousing means that products are manufactured efficiently. Questions 1. either of finished products or required This illustrates the effectiveness of Kellogg’s supply chain management (SCM). Name the three sectors of the supply chain. It works with retailers to improve promotion of its products.co. 92 . This also helps the company to keep prices competitive. Why is it important for Kellogg’s to build good relationships with businesses in the tertiary sector? 4. When deliveries are made. This then automatically generates orders to the manufacturing base at Trafford Park to replenish stocks. The and orders are delivered on time. Late deliveries or (product/price/place/promotion) inability to deliver due to a lack of products might make retailers buy from competitors. The computerised stockholding shows immediately when shelves are empty. items (components. On what occasions could certain sections of the primary sector operate as retailers? 2. they are costing money without earning any profit. Its focus on cost- effective systems ensures its prices are competitive. It manages the distribution channels to place its products in stores. raw materials. Each company works within Supply chain management: their specialist area to provide products and services to consumers. in itself. The effect on the environment is good too as heating and fuel costs are minimised. Kellogg’s now has a more customer needs.uk needs. Kellogg’s champions socially responsible operations. Kellogg’s manufactures the right products based on research into consumer www. Deliveries are cost effective as lorry capacity is used effectively. This was supplies e. Retailers want to hold limited stocks of products to reduce warehousing costs. This takes strategic planning and effective collaboration with all partners. which keep customers happy and loyal. Whilst every effort has been made to ensure accuracy Conclusion of information.co. The three sections of the industrial supply chain need to interact to ensure goods or services reach consumers. Retailers like ASDA and Tesco benefit as they are kept stocked without storage costs. Computerised stock holding systems ensure shelves are always full Just-in-time: production that produces goods to order. the customer and the environment. This helps Kellogg’s to keep stocks to a minimum. This collaboration has helped all of these aspects. lorries need to be full to minimise unit costs of transportation. as customers are always able to buy Kellogg’s products.uk of their business to specialist companies like TDG. significant level of stock. it benefits itself. the environment and other businesses. end products.kelloggs. neither the publisher nor the client can be held responsible for errors of omission or commission. Storage. GLOSSARY Just-in-time means that just enough product is made to fulfil orders and limited stock is kept. This minimises waste and the lower costs have increased Kellogg’s profits. Customers are guaranteed deliveries on time because stocks are monitored effectively. The Times Newspaper Limited and ©MBA Publishing Ltd 2009.g. Every day materials or products are on a shelf. Specialisation is more cost-effective for Kellogg’s and partnering with other industry specialists reduces costs to the business.32184_KELLOGGS:KELLOGGS STUDY V7 23/6/09 09:57 Page 4 Managing the supply chain effectively Having the right marketing mix ensures businesses have the right product. Give three examples of how Kellogg’s demonstrates good supply chain management. Kimberley Clark and TDG. Through used by an organisation to meet its collaborations with TDG and by relocating some of its warehousing. This avoids delay to customers. Kellogg’s uses a system called just-in-time to provide an efficient stock inventory system. Therefore their advertising yields good returns. then transported straight from the warehouse to retail customers. Through effective supply chain management. Marketing mix: a series of variable factors such as the four Ps Kellogg’s needs to get the balance right at each section of the supply chain. It also helps business does not hold any customers like ASDA and Tesco to reduce their stocks too. is investment without returns. achieved by a collaboration of industries within the supply chain.thetimes100. Retailers do not want a warehouse that is unnecessarily full and neither do manufacturers. in the right place. How can Kellogg’s make improvements both for its business and for the environment? 3. The efficient delivery of the product to the consumer at the right price. TDG keeps the warehouse costs low through computerised heating and specialist transportation skills. etc). creation of effective systems for the organisation of the distribution of a) Distribution has improved through the collaboration of Kellogg’s. components. efficient distribution system. Evaluate the benefits of large manufacturers like Kellogg’s handing over the logistical side www. b) The lean production system streamlines processes and eliminates waste.